BT: Inflation may hit 5% in Q1 '08 as oil, food prices head north

Business Times - 13 Nov 2007

Inflation may hit 5% in Q1 '08 as oil, food prices head north

But Singapore's competitiveness still intact: Hng Kiang

By UMA SHANKARI

(SINGAPORE) Singapore's inflation rate could hit 5 per cent in the first quarter of 2008 on the back of record oil prices and higher food and transportation costs, Trade and Industry Minister Lim Hng Kiang told Parliament yesterday.

'We expect (inflation in) the first quarter of next year to reach the peak of between 4 and maybe even 5 per cent,' Mr Lim said.

For the present quarter, the consumer price index (CPI) is expected to rise at least 2.7 per cent, he said.

The index rose 0.5 per cent in the first quarter of 2007, one per cent in the second quarter and 2.7 per cent in the third quarter.

'Food prices have risen mainly due to dearer imports arising from supply disruptions in some of our major food import sources,' Mr Lim said.

Similarly, oil prices have reached historical highs in recent months due to strong global demand, tight supply and low global inventories, he said.

The index in the first quarter of 2008 will also be high because it will be compared to the first quarter of 2007's relatively lower base, he said. But inflation is expected to moderate in the second half of 2008, Mr Lim added.

Singapore's central bank - the Monetary Authority of Singapore (MAS) - has an official inflation forecast of 1.5-2 per cent for 2007 and 3 per cent for 2008.

MAS has allowed the Singapore dollar to appreciate in recent months to ease inflation. The government has also taken steps to cool the booming property market, which experts said is contributing to inflationary pressure.

The new forecast for the first quarter of 2008 is 'a bit shocking', Citigroup economist Chua Hak Bin told a news wire.

Dr Chua said that the central bank may need to tighten policy again, possible before its next scheduled meeting in April.

Yesterday, Members of Parliament also voiced fears that rising prices could affect Singapore's ability to attract foreign companies.

In response, Mr Lim said that Singapore is still competitive in this respect.

'We are tracking our competitiveness position very closely and so far we are in quite a good position,' he said.

Mr Lim pointed out that Singapore's inflation rate was still lower than what other countries are seeing. And while wages here climbed in 2006 and in the first three quarters of this year, the increases came on the back of a long period where wages did not move up much, he said.

On Sunday, Prime Minister Lee Hsien Loong said that the government is unlikely to impose controls on food or utility prices in response to rising inflation, but will continue to use other ways to help Singaporeans cope with the cost of living.

He was speaking at the People's Action Party annual convention after a party member had asked how the PAP-controlled government could help lower-income Singaporeans cope with rising prices.